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Journal of Contemporary Accounting & Economics 10 (2014) 148159

Contents lists available at ScienceDirect

Journal of Contemporary
Accounting & Economics
journal homepage: www.elsevier.com/locate/jcae

The effects of harmonization and convergence with IFRS on the


timeliness of earnings reported under Chinese GAAP
Grace Shu-hsing Wu a,, Shu-hsing Li b, Steve Lin c
a

Chang Jung Christian University, Taiwan


National Taiwan University, Taiwan
c
Florida International University, USA
b

a r t i c l e

i n f o

Article history:
Received 16 August 2011
Revised 1 June 2014
Accepted 4 June 2014
Available online 14 June 2014
Keywords:
IFRS Convergence
Chinese GAAP
Future earnings response coefcient

a b s t r a c t
This study examines the effects of a series of harmonization and convergence with IFRS on
the timeliness of recognition of earnings in emerging Chinese markets. We nd that
earnings reported under Chinese GAAP have a lower earnings response coefcient, but a
higher future earnings response coefcient, than earnings reported under IFRS before
Chinese GAAP converged with IFRS in 2007. This indicates that earnings reported under
Chinese GAAP are generally less timely than earnings reported under IFRS before convergence. We also nd that the future earnings response coefcient of earnings reported under
Chinese GAAP continues to increase, indicating that the timeliness of recognition of earnings reported under Chinese GAAP worsened after a series of harmonization and convergence with IFRS in China. Taken together, this study provides evidence indicating that
harmonizing and converging national accounting standards with IFRS in emerging capital
markets may not necessarily increase accounting quality.
2014 Elsevier Ltd. All rights reserved.

1. Introduction
This study examines whether a series of harmonization and convergence with International Financial Reporting
Standards (IFRS)1 improves the timeliness of recognition of earnings in emerging Chinese capital markets. Although previous
studies (e.g., Sami and Zhou, 2004; Liu and Liu, 2007) have examined the relative value relevance of accounting information
prepared in accordance with IFRS and Chinese GAAP (PRC GAAP),2 little is known about the effects of a series of harmonization
and convergence with IFRS, which were launched in China during 19982007, on the timeliness of recognition of earnings
reported under PRC GAAP. This is an important issue for the following two reasons.
First, previous studies (e.g., Sami and Zhou, 2004; Liu and Liu, 2007) nd that accounting numbers, including earnings
reported under PRC GAAP, primarily based on less timely historical cost accounting, are less value-relevant than earnings
reported under IFRS, based on more timely fair value accounting. To the best of our knowledge, no study has examined
the extent to which a series of harmonization and convergence with IFRS in China before 2007 improves the timeliness of
recognition of earnings reported under PRC GAAP. This study lls the gap in the literature.
 Corresponding author.
E-mail address: shwu@mail.cjcu.edu.tw (G.S.-h. Wu).
1
This study considers IFRS to include International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) that were issued by
both the International Accounting Standards Committee (IASC) and the International Accounting Standards Board (IASB), respectively.
2
The value relevance studies only provide the association between share prices and earnings, and the book value of equity, which do not provide direct
evidence about how current-year stock returns reect current-year and future earnings.
http://dx.doi.org/10.1016/j.jcae.2014.06.002
1815-5669/ 2014 Elsevier Ltd. All rights reserved.

G.S.-h. Wu et al. / Journal of Contemporary Accounting & Economics 10 (2014) 148159

149

Second, most of the previous studies (e.g., Jeanjean and Stolowy, 2008; Barth et al., 2008) largely focus on the effect of
IFRS adoption on rms earnings quality. However, many countries, such as Japan and China, have chosen to harmonize
and/or converge their domestic accounting standards with IFRS instead of a full adoption of IFRS. The effect of harmonization
and convergence with IFRS on earnings quality should differ from a full adoption of IFRS, which has not yet been examined in
the literature.
Following Wareld and Wild (1992) and Collins et al. (1994),3 we rst examine and compare the earnings response
coefcient (ERC) and future earnings response coefcient (FERC) for earnings reported under IFRS and PRC GAAP. We then
investigate and compare FERC under PRC GAAP throughout the harmonization (19982005) and the convergence (2007
2009) periods that aimed to align Chinese accounting practices with international accounting standards. More specically,
we compare the ERC and FERC in four sub-periods. They include the pre-harmonization (19941997), initial harmonization
(19982000), further harmonization (20012005), and post convergence (20072009) periods. The Chinese government started
the rst accounting reform in China in 1993. However, the initial and further harmonization with international accounting and
corporate governance practices did not take place until 1998 and 2001, respectively. PRC GAAP only allowed certain nancial
assets and liabilities to be valued at fair value during the harmonization period (e.g., goodwill impairment loss, gains on debt
restricting). Starting in 2007, all Chinese enterprises listed on the Shanghai Stock Exchange (SHSE) and Shenzhen Stock Exchange
(SZSE) are only required to prepare their nancial statements in accordance with the Accounting Standards for Business
Enterprises (ASBE), which have been largely converged with IFRS with some differences.
We nd that earnings reported under PRC GAAP consistently have a lower ERC than earnings reported under IFRS for
rms that issued both A- and B- shares in the pre-, initial, and further harmonization periods. This suggests that IFRS earnings contain more timely information than PRC GAAP earnings. Further analyses show that PRC GAAP earnings in both the
initial and further harmonization periods have a lower ERC than that in the pre-harmonization period. More importantly, we
nd that PRC GAAP earnings in the convergence period (20072009) have a higher FERC than that in the further harmonization period (20012005). The above results are robust after controlling for rm size, growth, risk, industry, earnings persistence, trading volume, and ownership structure in China. This study contributes to the extant literature by providing
consistent evidence indicating that the timeliness of recognition of earnings as reported under PRC GAAP consistently
declined after a series of harmonization and convergence with IFRS in China. Overall, our ndings imply that harmonization
and convergence with IFRS in emerging capital markets may not necessarily lead to an increase in accounting quality. Our
results should be of interest to investors, nancial analysts, accounting standards setters, and other users of nancial
statements.
The rest of this paper is organized as follows: Section 2 presents background information on a series of harmonization and
convergence with IFRS in China during 19982007. Section 3 reviews prior research and develops three testable research
hypotheses. Section 4 discusses the test methodology and the sample. Section 5 reports the results of empirical tests.
Section 6 concludes.

2. Institutional background and IFRS convergence


2.1. Harmonization and convergence with IFRS in China
To move towards a market economy, China began the rst wave of accounting reforms in 1993 by introducing the Enterprise Basic Accounting Standards and amending the national accounting law to align Chinese accounting practices with international accounting standards. A two-stage harmonization activity with IFRS took place after the Ministry of Finance (MOF)
issued the Accounting System for Joint Stock Limited Enterprises and Accounting System for Business Enterprises (ASBE) in 1998
and 2001, respectively, which further brought Chinese accounting standards in line with international accounting standards
and, mostly importantly, signicantly improved both the quality and quantity of corporate accounting disclosures. The above
changes were also accompanied by some dramatic reforms in corporate ownership structure, corporate governance, and
market infrastructure. Given all of the above accounting and governance reforms in China, IFRS and PRC GAAP still differed
signicantly in many accounting measures and information disclosure requirements. Even after harmonization with IFRS,
PRC GAAP still had more restrictive rules for estimating depreciation expense, bad debt expense, and measuring inventory
(Sami and Zhou, 2004), and did not recognize or record deferred taxes or other liabilities, such as lease obligations and
contingencies. IFRS also required much more comprehensive disclosures in nancial statements than did PRC GAAP. For
example, IFRS allowed rms to use fair values to value assets (e.g. investment property, nancial instruments, and
intangibles) and liabilities, while PRC GAAP required historical cost for these assets.
Starting in 2007, all Chinese enterprises listed on the SHSE and SZSE are required to prepare their nancial statements in
accordance with the Accounting Standards for Business Enterprises (ASBE), which mirror IFRS with some minor differences,
including fair value accounting. The ASBE include New Basic Standards and 38 specic ASBE (16 of these standards were
issued by the MOF during the period May 1997November 2001). The ASBE that became effective in 2007 not only
3
Collins et al. (1994) include three future returns and earnings in the regressions, since their objective is to maximize the R-squared values of the returnsearnings model (Ettredge et al., 2005). The objective of this study is not to maximize R-squared value, but to test whether harmonization and convergence with
IFRS would improve ERC and FERC. Therefore, this study only adds the next years earnings and stock returns to the traditional return-earnings model.

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introduced signicant changes to PRC GAAP, but also signicantly increased both the quantity and quality of accounting disclosures. For example, ASBE 37 (equivalent to IFRS 7 Financial Instrument: Disclosures) requires rms with nancial instruments to disclose information about the signicance of using nancial instruments, and the nature and extents of the risk
that arises from using these instruments. ASBE 30 also requires disclosing the prot from discontinued operations net of
tax and the details regarding the carrying amount and fair values of the xed assets to be disposed of, and the estimated
disposal costs and expected time of disposal (Deloitte Touche Tohmatsu, 2006).
In summary, there have been a series of harmonization and convergence with IFRS in China during 19982007 that aimed
to align the Chinese accounting practices with international accounting standards. However, some accounting differences
between IFRS and PRC GAAP still remain because China has not fully adopted fair value accounting.
2.2. Classes of shares, ownership structure, and market regulations
Chinese-listed rms could issue several classes of shares including A-, B-, H-, and N- shares. A-shares are issued to Chinese
domestic investors and may be divided into four major subcategories: state shares held by government or state-owned
enterprises; shares held by legal persons; shares held by domestic institutions and foreign partners of joint ventures; and
shares held by employees. Many listed rms in China are somehow afliated with government (Firth et al., 2007).
Only one-third of A-shares were tradable before the split-share reform in April 2005. In contrast, B-shares are all
tradable, which are issued to and traded between international investors, although Chinese domestic investors can also trade
B-shares starting from February 2001. H-shares are those Chinese shares listed on the Hong Kong Stock Exchange (HKSE);
N-shares are those Chinese shares listed on the New York Stock Exchange. Finally, although nancial statements for the
B- (A-) share market were prepared in accordance with IFRS (PRC GAAP), nancial statements for both A- and B- shares
are now only prepared in accordance with PRC GAAP, which has been largely converged with IFRS since 2007.
To ensure compliance with all required accounting standards, the Chinese Securities Regulatory Commission (CSRC) and
the Chinese Institute of Certied Public Accountants (CICPA) impose severe penalties for any noncompliance (Defond et al.,
2000). To improve shareholders protection, the CSRC also issued Guidelines for Corporate Governance of Listed Firms and a
Notice of Establishing an Independent Directors System in Listed Firms in 2001 to further enforce basic accounting disclosure
requirements, including timely disclosures on the related-party transactions and intangible assets. There are also severe
legal penalties for any violations of the Code of Corporate Governance for the listed rms; however, maintaining an effective
audit committee in the rm was not mandatory until 2008.
The Chinese government also issued new auditing standards in 1996 and 1997 to improve auditing quality, and built an
independent accounting profession in 1998 by disafliating auditors from their sponsoring governmental agencies. The
Chinese Institute of Certied Public Accountants (CICPA) established four special committees in 2004 to discipline CPA rms
that had violated accounting and auditing regulations. Following the U.S., the CSRC also imposed an auditor rotation requirement in the same year. The above changes are widely believed to have signicantly reduced information asymmetry in
Chinese stock markets (Zhou, 2007). To further improve the quality of nancial reporting, the CSRC also implemented
new auditing standards, which became effective from 1 January 2007. However, based on the report of the World Economic
Forums Global Competitiveness (2011), which evaluates the strength of auditing and nancial disclosures in individual
countries, China is ranked at the 61st position (out of the 134 countries), which is lower than other Asian developing
economies, e.g., Taiwan (3rd), Hong Kong (12th), and Malaysia (25th) (Piotroski and Wang, 2012).
In summary, the Chinese government has been engaging in several major changes in accounting and auditing standards
to be in line with international practices. This study has controlled for rms ownership structure due to the unique classes of
ownership structure in China.
3. Prior research and hypotheses development
Different from previous studies on the relative value relevance of IFRS and PRC GAAP, this study investigates the effects of
a series of harmonization and convergence with IFRS on the timeliness of recognition of earnings in China. In other words,
this study focuses on FERC, i.e., the extent to which current share return reects information contained in future earnings.
We believe that it is important to consider FERC when evaluating a rms earnings quality. We predict that a series of harmonization and convergence with IFRS in China should have improved Chinese rms earnings quality and, therefore,
increased their ERC and decreased FERC.
This study relates to two strands of accounting research. They include the contemporaneous relationship between stock
returns and earnings reported under IFRS and PRC GAAP, and the timeliness of recognition of earnings, measured by the
association between current stock returns and future earnings. The following sections summarize relevant previous studies
and develop three testable hypotheses for empirical analyses.
3.1. Effect of harmonization and convergence with IFRS on the timeliness of earnings
Chinese companies prepared their nancial statements in accordance with both IFRS and PRC GAAP if they issued both
A- and B- shares before 2007. Many studies examine the relative value relevance of accounting numbers reported under IFRS

G.S.-h. Wu et al. / Journal of Contemporary Accounting & Economics 10 (2014) 148159

151

and PRC GAAP. For example, Bao and Chow (1999), Sami and Zhou (2004), and Liu and Liu (2007) nd that earnings and book
values of shareholders equity reported under IFRS are generally more value-relevant than those reported under PRC GAAP.
However, these studies do not examine the ERC and FERC of earnings reported under IFRS and PRC GAAP. This is an
important issue because a series of harmonization and convergence with IFRS in China over the last two decades may have
changed earnings quality and disclosures that would have impacts on ERC and FERC.
Many studies also nd that earnings quality generally improved following IFRS adoption. For example, using a sample of
rms from 21 countries that switched to IFRS during 19942003, Barth et al. (2008) compare several accounting quality metrics, including earnings management, timely loss recognition, and value relevance, before and after IFRS adoption. They nd
that accounting quality signicantly improved following the adoption of IFRS in these countries. Hung and Subramanyam
(2007) also nd that rms applying IFRS provide timelier information and have less earnings persistence because IFRS places
a greater emphasis on fair values and is more likely to incorporate the effects of economic events in the nancial statements.
Overall, previous studies provide evidence indicating that earnings reported under IFRS are recognized on a timelier basis
than earnings reported under domestic accounting standards, and that IFRS adoption generally improves earnings quality.
None of these studies, however, examine the effects of harmonization and convergence with IFRS on earnings quality using
Chinese data. A full adoption of IFRS may have very different impacts on earnings quality compared to harmonization and
convergence with IFRS because the former requires full compliance with IFRS and the latter allows certain deviations from
IFRS.
Another strand of accounting research examines the timeliness of recognition of earnings, measured by the association
between current stock returns and future earnings. For example, Collins et al. (1994) examine how earnings lack of timeliness affects the contemporaneous return-earnings relation. They nd that both current and future earnings can explain
roughly 36 times as much of the annual return variation as current earnings alone. Their nding implies that FERC is high
when ERC is low because current earnings reported under traditional historical cost accounting are not recognized on a
timely basis and, therefore, current stock returns reect the price information contained in future earnings.
Although PRC GAAP allowed certain fair value accounting practices, the underlying nature of PRC GAAP was still dominated by traditional historical cost accounting in the harmonization period. Since traditional historical cost accounting
underlying PRC GAAP provided less timely information for investors compared to fair value accounting underlying IFRS,
we predict a lower ERC, but a higher FERC, for earnings reported under PRC GAAP compared to earnings reported under IFRS.
H1a. The earnings response coefcient is lower for earnings reported under PRC GAAP than earnings reported under IFRS;
H1b. The future earnings response coefcient is higher for earnings reported under PRC GAAP than earnings reported under
IFRS.
To harmonize with International Accounting Standards, the MOF promulgated several new accounting standards from
19972001, which signicantly reduced the differences between PRC GAAP and IFRS, including relaxing the limits on provisions for bad debts, adopting long-term investment valuations, requiring equity methods for long-term investments with
2050% share holding, detailing inventory, and temporary investment valuations for the lower of cost or market. More
importantly, additional disclosure requirements were imposed during this period of time. For example, the Disclosures of
Related Party Relationships and Transactions and Events Occurring after Balance Sheet Date were released and came into
effect in 1997 and 1998, respectively, to increase the transparency of accounting information.
The Accounting System for Business Enterprises (ASBE) was introduced in 2001 to further harmonize PRC GAAP with IFRS.
The revised accounting standards require rms to recognize impairment losses on receivables, inventories, investments,
xed assets, intangibles, and other assets, and provide clear guidance to recognize certain goods, services, royalties, and
interest. As a result, the differences between PRC GAAP and IFRS were further reduced after the initial harmonization during
19982000. If both the initial and further harmonization activities with IFRS in 1998 and 2001 increased the timeliness of
recognition of earnings, we should observe a higher ERC (lower FERC) for earnings reported under PRC GAAP in the harmonization period. Hence, we predict:
H2a. The earnings response coefcient under PRC GAAP is higher in the post- harmonization period than in the
pre-harmonization periods;
H2b. The future earnings response coefcient under PRC GAAP is lower in the post- harmonization period than in the
pre-harmonization periods.
Starting from 2007, PRC GAAP has been substantially converged with IFRS to further reduce the accounting differences
between the two sets of accounting standards and further improved the quality of earnings in China. Therefore, we expect
a higher ERC and lower FERC in the post-convergence period compared to the harmonization period. Therefore, we predict:
H3a. The earnings response coefcient under PRC GAAP is higher in the post-convergence period than in the harmonization
period;

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G.S.-h. Wu et al. / Journal of Contemporary Accounting & Economics 10 (2014) 148159

H3b. The future earnings response coefcient under PRC GAAP is lower in the post-convergence period than in the harmonization period.
3.2. Effects of rm characteristics on ERC and FERC
Previous studies (Ettredge et al., 2005; Tucker and Zarowin, 2006) nd that the informativeness of rms earnings is
determined by the rms information environment, earnings attributes, and industry sectors. To avoid any potential omitted
factors in our empirical tests, this study controls for rms growth, risk, rm size, earnings persistence, and loss. The control
variables also include Chinas unique institutional factors, such as state, public, and institutional share ownership, and trader
behavior.
Previous studies have proposed that rms with high state ownership generally attract investors with better access to insider information (Defond et al., 1999). In other words, rms with high state ownership have less demand for accounting disclosures. Xiao et al. (2004) nd that the extent of a rms voluntary, Internet-based disclosure decreases with higher state
ownership, but increases with the level of institutional ownership in China. Generally, different ownership involves different
nancial reporting incentives which, in turn, impact the value relevance of accounting earnings (Ding et al., 2007). Therefore,
this study controls for rms state-owned, institutional, and public shares.
Wareld and Wild (1992) and Lundholm and Myers (2002) nd that the amount of future earnings reected in currentyear stock returns varies across industries. Current-year stock returns may reect more future earnings news in industries
with longer accounting recognition lags, such as manufacturing, than in those with shorter lags. We therefore control for the
manufacturing industry.
Prior studies also nd that Chinese domestic investors generally trade on speculation and focus on short-term trading
gains (Wang and Xu, 2004; Sami and Zhou, 2004), such that the short holding period may inuence share prices. We therefore control for trading volume in this study.
4. Research design and sample
To test H1, that predicts that earnings reported under PRC GAAP have a lower ERC and a higher FERC than earnings
reported under IFRS, we follow prior studies (e.g., Ettredge et al., 2005) to control for rm-specic factors, such as growth,
loss, risk, rm size, and earnings persistence, We also control for institutional factors in the Chinese stock market, such as
state, public, and institutional shareholding, trading volume, and manufacturing industry. The complete model for our test
on H1 is therefore as follows:
PRCIFRS

RET At a km YEARt b0 Et1

PRCIFRS

b1 EPRCIFRS
b2 Et1
t

b3 RET At1 b4 GW t b5 LOSSt b6 RISK t b7 SIZEt

b8 PERSIST t b9 STATEt b10 PUBLIC t b11 INSTITU t b12 MANUF t b13 VOLUMEt e
RETAt

EPRC(IFRS)t1,

EPRC(IFRS)t,

1
EPRC(IFRS)t+1

where
represents the current period annual returns of A- share at time t; and
and
represent the prior, current, and next period earnings per share reported under PRC GAAP (IFRS), respectively, deated by the
share price of A- shares at the beginning of year t. In addition, RETAt+1 represents the next period stock returns of A- share;
GW, rm growth, measured by the market-to-book value of equity ratio (M/B); RISK is proxied by earnings variability, which
is measured by the standard deviation of earnings before interest and taxes, divided by total assets, for the preceding three
years of the sample rm in the particular year; Loss equals 1 if current year earnings are negative, 0 otherwise; SIZE is measured by the natural log of total assets; PERSIST, earnings persistence, measured by a dummy variable that equals 1 if nextyear earnings are negative, 0 otherwise (Ettredge et al., 2005); STATE is the percentage of equity shares held by the government; PUBLIC is the percentage of equity shares held by the public; INSTITU is the percentage of equity shares held by institutional investors; VOLUME is the natural log of the average trading volume over the period eight months before and four
months after the current year end; MANUF is coded 1 for rms in manufacturing industries, and 0 otherwise; and YEAR is
a series of year dummy variables.
In line with prior literature (Lundholm and Myers, 2002; Ettredge et al., 2005; Tucker and Zarowin, 2006), the coefcient
of prior period earnings, or b0, should be negative, and ERC, or b1, should be positive. FERC, or b2, is hypothesized to be positive if current earnings are not recognized on a timely basis. Because RETAt+1 is correlated with the unexpected component of
EPRC(IFRS)t+1, the coefcient of the next-period returns, or b3, is hypothesized to be negative. More importantly, we predict that
the ERC (FERC) in the PRC GAAP model should be lower (higher) than that in the IFRS model if PRC GAAP earnings are recognized on a less timely basis than IFRS earnings.
To test H2 (H3), we add POST, a dummy variable that indicates 1 if the test period is in the post- harmonization (convergence) period, 0 otherwise, to the Eq. (1). Hence, Eq. (2) is used to investigate whether the ERC (FERC) is higher (lower) in the
post harmonization and convergence period.
PRC
A
PRC
PRC
RET At a b0 EPRC
b2 EPRC
b7 POST  EPRC
t1 b1 Et
t1 b3 RET t1 b4 POST b5 POST  Et1 b6 POST  Et
t1

b8 POST  RET At1 b9 GW b10 LOSS b11 RISK b12 SIZE b13 PERSIST t b14 STATEt b15 PUBLIC t
b16 INSTITU t b17 MANUF t b18 VOLUMEt e

G.S.-h. Wu et al. / Journal of Contemporary Accounting & Economics 10 (2014) 148159

153

Table 1
Sample distribution.
Year
Panel A: Pre-IFRS harmonization period
1994
1995
1996
1997
Total
Panel B: Initial-harmonization period
1998
1999
2000
Total
Panel C: Further-harmonization period
2001
2002
2003
2004
2005
Total
Panel D: IFRS convergence period
2007
2008
2009
Total

Observations
22
46
47
68
183
71
75
68
214
76
75
72
63
44
330
83
84
78
245

where POST is a dummy variable that equals 1 for the post-harmonization (19982005) and post-convergence (20072009)
periods, and 0 for the pre-harmonization (19941997) and pre-convergence periods (20012005). Other variables are
dened in Eq. (1).
We predict that the coefcient of POST  EPRC
is positive and signicant, and the coefcient of POST  EPRC
t
t1 is expected to
be negative and signicant if harmonization and convergence with IFRS improve the timeliness of recognition of earnings.
We also control for other factors that may affect ERC and FERC in our tests.
4.1. Sample selection and data collection
The sample consists of all Chinese-listed rms that issue both A- and B-shares on the SHSE or SZSE. Only rms with PRC
GAAP and IFRS earnings and market data, such as A-share prices, available between 1993 and 2010 are included in this study.
Both the accounting and market data were obtained from the Taiwan Economic Journal (TEJ). We nd 972 rm-year observations with both PRC GAAP and IFRS accounting information available during 199320104 after deleting the extreme observations for the main variables of interest (i.e., top and bottom 1%).5 We also use the restated ASBE earnings data (i.e., the data
substantially converged with IFRS) in 2006 as the prior-year earnings for sample rms in 2007. The sample distribution of rms
issuing both A- and B-shares appears in Panels A, B, C, and D of Table 1.
5. Empirical results
5.1. Descriptive statistics
Tables 2 reports the descriptive statistics for all of the variables examined in our empirical analysis. Comparing Panel A
and B of Table 2, we nd that the means and medians of the current earnings and future earnings reported under PRC GAAP
are consistently higher than those reported under IFRS in the pre-IFRS harmonization period, but they become rather similar
in the further harmonization period. This result conrms that discrepancies in accounting measures decrease following the
harmonization with IFRS. We also nd that earnings under IFRS and PRC GAAP continue to decline throughout the four test
periods.
Panel C (D) of Table 2 reports the descriptive statistics for the control variables under PRC GAAP (IFRS). Firm growth,
measured by market-to-book value of equity ratio, appears to be much higher during the initial harmonization period
(19982000) than that in other periods. Risk, measured by three-year earnings variability, also reached its peak during
4

Although the test period is from 1994 to 2009, we need 1993 and 2010 data for both models (1) and (2).
The main variables of interest include prior and current share prices and prior, current, and future earnings. As a robustness test, we also winsorized all of
the continuous observations at 1% and 99%, and re-ran the regression analyses reported in Tables 4 and 5. We nd that the results for our variables of interest
(i.e., ERC and FERC) are consistent with those previously reported.
5

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G.S.-h. Wu et al. / Journal of Contemporary Accounting & Economics 10 (2014) 148159

Table 2
Descriptive statistics for rm issued both A- and B-shares during 19942009.
Pre-harmonization
19941997 (183 obs.)
Variables

Mean

Initial Harmonization
19982000 (214 obs.)

Median

Panel A: PRC GAAP earnings


RET At
0.266
0.053
EPRC
0.125
0.070
t1 =P t1
EPRC
=P t1
0.098
0.048
t
EPRC
0.066
0.032
t1 =P t1
RET At1
0.173
0.002

Mean

Panel B: IFRS earnings


0.112
EIFRS
t1= =P t1
EIFRS
=P t1
0.082
t
EIFRS
0.056
t1 =P t1

Mean

Median

STD

Mean

Median

STD

Mean

Median

STD

0.678
0.150
0.160
0.133
0.601

0.280
0.129
0.037
0.042
0.279

0.246
0.038
0.021
0.018
0.228

0.536
0.416
0.104
0.114
0.528

0.06
0.029
0.034
0.04
0.416

0.15
0.020
0.020
0.023
0.038

0.403
0.127
0.114
0.112
1.115

0.081
0.011
0.016
0.019
0.152

0.016
0.014
0.017
0.016
0.06

0.47
0.049
0.045
0.041
0.455

19982000 (214 obs.)


STD

Mean

Median

STD

Mean

Median

STD

0.006
0.037
0.025

0.160
0.150
0.139

0.036
0.036
0.035

0.021
0.018
0.015

0.102
0.105
0.125

0.030
0.033
0.042

0.021
0.021
0.023

0.130
0.118
0.109

Median

19982000 (214 obs.)


STD

Panel C: Control variables under PRC GAAP


GW
2.028
1.810
1.267
RISK
0.04
0.027
0.034
SIZE
6.202
6.187
0.337
PERSIST
0.142
0.000
0.350
LOSS
0.076
0.000
0.266

Median

Panel D: Control variables under IFRS


GW
2.161
1.925
RISK
0.057
0.033
SIZE
6.179
6.164
PERSIST
0.229
0.000
LOSS
0.158
0.000

Median

20072009 (245 obs.)

Median

STD

Mean

Median

STD

Mean

Median

STD

10.338
0.038
6.278
0.144
0.154

2.755
0.028
6.268
0.000
0.000

25.45
0.037
0.348
0.352
0.361

3.102
0.072
6.366
0.149
0.145

1.876
0.021
6.362
0.000
0.000

8.320
0.262
0.423
0.367
0.353

5.422
0.063
6.472
0.146
0.175

3.708
0.022
6.473
0.000
0.000

8.106
0.124
0.652
0.354
0.366

19982000 (214 obs.)

20012005 (330 obs.)

STD

Mean

Median

STD

Mean

Median

STD

1.460
0.078
0.346
0.421
0.366

4.997
0.036
6.624
0.252
0.224

2.653
0.027
6.243
0.000
0.000

10.837
0.033
0.343
0.435
0.418

1.747
0.082
6.356
0.169
0.190

1.853
0.025
6.347
0.000
0.000

18.009
0.284
0.426
0.375
0.393

19941997 (183 obs.)


Mean

20012005 (330 obs.)

Mean

19941997 (183 obs.)


Mean

20012005 (330 obs.)

Median

19941997 (183 obs.)


Mean

IFRS Convergence
20072009 (245obs.)

STD

19941997 (183 obs.)


Variables

Further Harmonization
20012005 (330 obs.)

19982000 (214 obs.)


STD

Panel E: Control variables for ownership structure,


STATE
0.369
0.447
0.252
PUBLIC
0.126
0.100
0.092
INSTITU
0.208
0.075
0.245
VOLUME
5.162
5.158
0.482
MANUF
0.469
0.000
0.500

Mean

Median

20012005 (330 obs.)


STD

trading volume, and industry


0.367
0.409
0.227
0.153
0.131
0.109
0.144
0.052
0.206
5.331
5.315
0.308
0.457
0.000
0.499

20072009 (245 obs.)

Mean

Median

STD

Mean

Median

STD

0.340
0.183
0.123
3.893
0.490

0.341
0.154
0.009
4.723
0.000

0.219
0.119
0.172
1.494
0.500

0.221
0.396
0.090
5.731
0.448

0.205
0.360
0.000
5.743
0.000

0.205
0.194
0.150
0.572
0.495

Note: RET At is the annual stock return for year t calculated as the cumulative 12-month raw return for A-shares ending four months after the scal year end.
RET At1 is the annual stock return for year t + 1 calculated as the cumulative 12-month raw return for A-shares ending four months after the scal year end.
EPRC
t1 =P t1 is the earnings per share for year t  1 under PRC GAAP, deated by the beginning stock price of A-shares for period t.
EPRC
=P t1 is the earnings per share for year t under PRC GAAP and deated by the beginning stock prices of A-shares for period t.
t
EPRC
t1 =P t1 is the earnings per share for year t + 1 under PRC GAAP, deated by the beginning stock price of A-shares for period t.
EIFRS
t1 =P t1 is the earnings per share for year t  1 under IFRS, deated by the beginning stock price of A-shares for period t.
EIFRS
=P t1 is the earnings per share for year t under IFRS, deated by the beginning stock price of A-shares for period t.
t
EIFRS
t1 =P t1 is the earnings per share for the year t + 1 under IFRS, deated by the beginning stock price of A-shares for period t.
Note: GW indicates rm growth, measured by the market value-to-book value of equity ratio.
RISK equals 1 if earnings variability over the preceding three years is greater than the median of the sample, 0 otherwise. Earnings variability, measured by
the standard deviation of earnings before interest and taxes divided by total assets.
SIZE is rm size, measured by the natural log of total assets.
STATE is the percentage of the equity shares held by the government.
PUBLIC is the percentage of equity shares held by the public.
INSTITU is the percentage of equity shares held by institutional investors.
VOLUME is trading volume, measured by the natural log of actual trading volumes.
MANUF is coded 1 if the rm is in the manufacturing industry, 0 otherwise.
PERSIST indicates earnings persistence, equals 1 if the next years earnings are negative, 0 otherwise.
LOSS equals 1 if the current years earnings are negative, 0 otherwise.

the further harmonization period (20012005). Average rm size appears to be similar during all of the test periods. More
importantly, rms are more likely to have lower earnings persistence, measured by negative next-year earnings, under IFRS
than PRC GAAP. This is consistent with Hung and Subramanyam (2007), in that IFRS uses more fair value accounting, causing

155

G.S.-h. Wu et al. / Journal of Contemporary Accounting & Economics 10 (2014) 148159


Table 3
Pearson correlation coefcients.
Pre-harmonization (19941997, 183 obs.)
RET At
Panel A: PRC GAAP earnings
EPRC
0.333
t1
EPRC
0.426
t
EPRC
0.289
t1
RET At1
0.057

EPRC
t1

0.801
0.620
0.257

Initial-harmonization (19982000, 214 obs.)


EPRC
t

EPRC
t1

RET At

EPRC
t1

EPRC
t

EPRC
t1

0.262

EPRC
t1
EPRC
t
EIFRS
t1
RET At1

0.073
0.058
0.067
0.301

0.530
0.498
0.174

0.843
0.09

0.037

0.268

IFRS convergence (20072009, 245 obs.)


EPRC
0.056
t1
EPRC
0.176
0.149
t
EIFRS
0.192
0.051
t1
RET At1
0.132
0.061

0.179
0.211

0.106

EIFRS
t

EIFRS
t1

0.667
0.110

0.007



0.746
0.257

Further-harmonization (20012005, 330 obs.)


EPRC
0.258
t1
EPRC
0.436
0.564
t
EPRC
0.485
0.552
0.639
t1
RET At1
0.320
0.187
0.127
19941997 (183 obs.)
RET At

19982000 (214 obs.)


EIFRS
t1

EIFRS
t

EIFRS
t1

Panel B: IFRS earnings


EIFRS
0.317
t1
EIFRS
0.394
t
EIFRS
0.300
t1
RET At1
0.057

0.851
0.723
0.220

0.841
0.233

0.250

20012005 (330 obs.)


EIFRS
0.231
t1
EIFRS
0.439
t
EIFRS
0.482
t1
RET At1
0.320

0.519
0.507
0.187

0.609
0.080

0.213

RET At
EIFRS
t1
EIFRS
t
EIFRS
t1
RET At1

0.153
0.039
0.121
0.301

EIFRS
t1

0.801
0.542
0.005

Note: All the variables are dened in Table 2.



Signicant at the 1% level.

Signicant at the 5% level.

lower earnings persistence. Similarly, rms are more likely to report losses under IFRS than PRC GAAP. Panel E reports descriptive statistics for ownership, trading volume, and industry. We nd that the average state ownership signicantly reduces
from 0.369 in the pre-harmonization period to 0.340 in the further harmonization period, and to 0.221 in the convergence
period. In contrast, percentage of shares owned by the public signicantly increases from 0.126 in the pre-harmonization period to 0.183 in the further harmonization period, and to 0.396 in the convergence period. However, the institutional shareholding signicantly drops from 0.208 in the pre-harmonization period to 0.123 in the further harmonization period and
to 0.09 in the convergence period. Trading volume appears to be stable, except in the further harmonization period.
Panel A and B of Table 3 show the correlation coefcients between our key variables, including current and future returns
and current, past, and future earnings under PRC GAAP and IFRS, respectively. Panel A shows that the correlation coefcients
between current returns and current and future earnings reported under PRC GAAP are positive and signicant, although the
correlation between current returns and past earnings is less clear cut. The correlation coefcient between current returns
and current earnings reported under PRC GAAP increases from the pre-harmonization (19941997) to the further harmonization period (20012005), but decreases from the further harmonization period (20012005) to the convergence period
(20072009); the correlation coefcient between current returns and future earnings increases from the initial IFRS harmonization (19982000) to further IFRS harmonization periods (20012005), but decreases from the further IFRS harmonization period to the convergence period (20072009). The above ndings suggests that harmonization (convergence) with IFRS
may not (may) increase the timeliness of recognition of earnings. Past, current, and future earnings are positively correlated
in all periods, except the convergence period. Finally, the correlation between current and future returns is negative in all
periods, except the further harmonization period. Panel B shows very similar results to Panel A, in that the correlation coefcients between current returns and current and future earnings reported under IFRS increase from the pre-harmonization
to the further harmonization period. Moreover, the correlation coefcients between past, current, and future earnings
reported under PRC GAAP and IFRS in the pre- harmonization and initial-harmonization periods are generally high (above
0.498); however, further analysis using the variance ination factor (VIF) does not show a serious multicollinearity issue.
5.2. Regression results
Table 4 presents the regression results derived from Eq. (1). The table shows a side-by-side comparison of earnings
reported under PRC GAAP and IFRS during the pre-harmonization, initial, further harmonization, and convergence periods.
However, because all Chinese rms report under PRC GAAP for both A- and B-shares after 2007, we therefore show the
results based on PRC GAAP in the convergence period only.
The results for the pre-harmonization period (i.e., 19941997) show that the coefcients of EPRC
and EIFRS
are positive and
t
t
signicant at the 1% level. However, ERC under IFRS is slightly greater than that under PRC GAAP (3.11 vs. 2.24), indicating

Pre-harmonization
19941997 (183 obs.)

Initial-harmonization
19982000 (214 obs.)

Further-harmonization
20012005 (330 obs.)

IFRS convergence
20072009 (245 obs)

IFRS

PRC GAAP

IFRS

PRC GAAP

IFRS

PRC GAAP

0.53
(1.99)
0.21
(0.53)

1.19
(1.61)
0.68
(1.46)

0.48
(0.65)
0.07
(1.32)

0.01
(1.01)
1.58
(2.64)

0.62
(2.06)
0.39
(2.48)

0.80
(2.70)
0.34
(2.71)

0.45
(1.01)
0.06
(0.08)

Et

2.24
(4.89)

3.11
(4.98)

0.01
(1.79)

1.81
(3.35)

0.59
(2.23)

0.67
(3.03)

2.67
(1.95)

Et+1

0.21
(0.43)

0.48
(0.80)

0.01
(0.02)

0.03
(0.17)

1.25
(3.63)

1.09
(3.30)

2.33
(2.88)

RETAt+1

0.15
(2.64)

0.13
(2.54)

0.08
(1.39)

0.06
(1.11)

0.08
(2.09)

0.05
(1.38)

0.17
(2.94)

GW

0.10
(2.68)

0.10
(3.59)

0.0003
(0.78)

0.001
(1.71)

0.001
(2.12)

0.0003
(1.96)

0.01
(1.36)

LOSS

0.02
(0.28)

0.06
(0.69)

0.03
(0.38)

0.01
(0.19)

0.03
(0.82)

0.01
(0.40)

0.20
(1.58)

RISK

0.80
(092)

0.33
(0.34)

0.91
(1.11)

1.60
(2.01)

0.10
(2.20)

0.07
(1.66)

0.43
(0.88)

SIZE

0.17
(1.34)

0.22
(1.73)

0.34
(4.09)

0.32
(3.58)

0.03
(0.86)

0.06
(1.54)

0.04
(0.65)

PERSIST

0.01
(0.09)

0.03
(0.37)

0.06
(0.66)

0.02
(0.37)

0.01
(0.33)

0.01
(0.27)

0.12
(1.09)

STATE

0.27
(0.85)

0.31
(0.86)

0.22
(1.10)

0.12
(0.74)

0.06
(0.60)

0.07
(0.76)

0.15
(0.74)

PUBLIC

0.39
(0.53)
0.38
(1.28)

0.57
(0.82)
0.48
(1.47)

0.09
(0.48)
1.12
(3.91)

0.01
(0.03)
0.91
(2.99)

0.08
(0.57)
0.12
(0.98)

0.12
(0.79)
0.11
(0.90)

0.45
(1.50)
0.31
(1.09)

MANUF

0.01
(0.23)

0.04
(0.57)

0.09
(1.95)

0.04
(1.00)

0.003
(0.11)

0.01
(0.24)

0.07
(1.62)

VOLUME

0.47
(0.29)

0.46
(1.98)

0.50
(3.91)

0.39
(3.39)

0.03
(1.48)

0.03
(1.39)

0.14
(1.82)

YEAR
Adj R2

YES
0.63

YES
0.63

YES
0.56

YES
0.59

YES
0.47

YES
0.47

YES
0.36

Et1

INSTITU

Note: YEAR is year dummy variables.


Other variables are dened in Table 2.
All of the t statistics are adjusted for Whites (1980) unbiased covariance to correct for heteroskedasticity.

Signicant at the 1% level.

Signicant at the 5% level.

Signicant at the 10% level.

G.S.-h. Wu et al. / Journal of Contemporary Accounting & Economics 10 (2014) 148159

PRC GAAP
Intercept

156

Table 4
PRCIFRS
PRCIFRS
Regression results using rms with both A- and B-shares. RET At a km YEARm b0 Et1
b1 EPRCIFRS
b2 Et1
b3 RET At1 b4 GW t b5 LOSSt b6 RISK t b7 SIZEt b8 PERSIST t b9 STATEt b10 PUBLIC t
t
b11 INSTITU t b12 MANUF t b13 VOLUMEt e 1.

157

G.S.-h. Wu et al. / Journal of Contemporary Accounting & Economics 10 (2014) 148159

Table 5
PRC
A
PRC
PRC
A
Regressions
results.
RET At a b0 EPRC
b2 EPRC
b7 POST  EPRC
t1 b1 Et
t1 b3 RET t1 b4 POST b5 POST  Et1 b6 POST  Et
t1 b8 POST  RET t1 b9 GW
b10 LOSS b11 RISK b12 SIZE b13 PERSIST t b14 STATEt b15 PUBLIC t b16 INSTITU t b17 MANUF t b18 VOLUMEt e 2.
Pre-/Post-harmonization (1)
19941997 vs. 19982005

Pre-/Post-convergence (2)
20012005 vs. 20072009

Intercept

0.15
(0.45)

0.08
(0.72)

EPRC
t 1

1.35
(1.42)

0.27
(1.84)

EPRC
t

1.78
(4.48)

0.83
(3.37)

EPRC
t +1

0.43
(1.01)

0.55
(1.97)

RETAt+1

0.07
(1.42)

0.09
(4.25)

Post

0.09
(1.81)

0.17
(3.92)

Post  EPRC
t 1

0.19
(0.95)

0.35
(0.17)

Post  EPRC
t

0.57
(2.46)

0.81
(0.64)

Post  EPRC
t +1

0.20
(0.82)

1.41
(1.73)

Post  RETAt+1

0.12
(2.46)

0.21
(3.12)

GW

0.002
(2.39)

0.01
(1.79)

LOSS

0.08
(1.20)

0.09
(1.39)

RISK

0.11
(1.91)

0.08
(3.95)

SIZE

0.07
(1.52)

0.03
(1.09)

PERSIST

0.01
(0.25)

0.01
(0.13)

STATE

0.03
(0.25)

0.06
(0.53)

PUBLIC

0.13
(0.80)

0.33
(2.39)

INSTITU

0.19
(1.19)

0.09
(0.52)

MANUF

0.01
(0.24)

0.03
(1.28)

VOLUME

0.09
(7.40)

0.03
(2.71)

Adjusted R2
Observations

0.19
727

0.23
575

Note: POST in column (1) is coded as 1 for the harmonization period (19982005), 0 otherwise (19941997).
POST in column (2) is coded as 1 for the post-convergence period (20072009), 0 otherwise (20012005).
Other variables are dened in Table 2.
The t statistics are adjusted for Whites (1980) unbiased covariance to correct for heteroskedasticity.

Signicant at the 0.01 level.

Signicant at the 0.05 level.

Signicant at the 0.1 level.

that in the pre-harmonization period, IFRS earnings are recognized on a slightly timelier basis than PRC GAAP earnings. We
PRC
IFRS
PRC
A
nd that the coefcients of EIFRS
t1 ; Et1 ; Et1 , and Et1 are all negative, but insignicant. Consistent with the literature, RETt+1 is
negative and signicant at the 1% and 5% level, respectively. Table 4 also shows that both the IFRS and PRC GAAP models
appear to have the same R-squared value of 63%, indicating that both PRC GAAP and IFRS earnings are equally useful for
the A-share market.

158

G.S.-h. Wu et al. / Journal of Contemporary Accounting & Economics 10 (2014) 148159

The result for the initial harmonization period (i.e., 19982000) shows that ERC is positive and signicant at the 10% level
when earnings are reported under PRC GAAP; whereas, ERC is positive and signicant at the 1% level when earnings are
reported under IFRS. This nding is generally consistent with previous studies (Bao and Chow, 1999; Sami and Zhou,
2004; Liu and Liu, 2007), in that IFRS earnings have higher quality (i.e., a higher ERC) than PRC GAAP. Although only past
IFRS earnings are negative and signicant, both future earnings and returns are insignicant. The adjusted R-squares of Ashares for PRC GAAP and IFRS information are similar (56% and 59%, respectively), indicating that there is no signicant difference in the explanatory power of PRC GAAP and IFRS earnings.6
The result for the further harmonization period (i.e., 20012005) shows that both the coefcients of EIFRS
(0.67) and EPRC
t
t
IFRS
(0.59) are positive and signicant at the 1% and 5% level, respectively. Moreover, both the coefcients of Et1 and EPRC
t1 are
PRC
IFRS
positive and signicant at the 1% level, with the coefcient of Et1 (1.25) being greater than that of Et1 (1.09). These ndings
suggest that earnings reported under PRC GAAP are recognized on a less timely basis than earnings reported under IFRS.
Furthermore, the result for the convergence period (20072009) shows that the coefcient of EPRC
(2.67) is positive and
t
signicant at the 10% level, while the coefcient of EPRC
(2.33)
is
positive
and
signicant
at
the
1%
level,
indicating that the
t1
timeliness of recognizing earnings worsened (i.e., FERC increases to 2.33 in the convergence period from 1.25 in the harmonization period) after PRC GAAP converged with IFRS from 2007. A possible explanation for the high EPRC
t1 in both the further
harmonization and convergence periods is that Chinese stock markets are emerging and immature markets with insufcient
market infrastructure to support a greater use of fair value accounting (He et al., 2012).
Together, we nd that earnings reported under PRC GAAP have a lower ERC compared to earnings reported under IFRS
during the pre-harmonization, initial, and further harmonization periods, but have a higher FERC in the further harmonization period. We also nd that FERC of PRC GAAP earnings further increases from 1.25 to 2.33 in the convergence period.
Overall, the above results support H1.
Table 5 presents the regression results derived from Eq. (2). Only PRC GAAP earnings are examined and reported in this
table. When examining the effect of harmonization with IFRS, we nd that the coefcient of POST  EPRC
is negative and sigt
nicant (0.57, t = 2.46, p = 0.014), which indicates that the ERC under PRC GAAP is lower in the post-harmonization period
than in the pre-harmonization period, after controlling for other factors. Moreover, the coefcient of POST  EPRC
t1 is negative,
but insignicant (0.20, t = 0.82, p = 0.411). These ndings suggest that harmonization with IFRS does not improve the
timeliness of earnings. Therefore, we nd no evidence supporting H2. When comparing the further harmonization and
convergence periods, we nd that the coefcient of POST  EPRC
(0.81, t = 0.64, p = 0.517) is positive, but insignicant. The
t
coefcient of POST  EPRC
t1 (1.41, t = 1.73, p = 0.083) is, however, positive and signicant at the 10% level, indicating that
the FERC under PRC GAAP is higher in the convergence period than in the further harmonization period. This nding suggests
that convergence with IFRS in the Chinese stock market does not seem to have improved the timeliness of recognition of
earnings. Therefore, our ndings do not support H3.
In summary, we do not nd supporting evidence that both harmonization and convergence with IFRS in China improved
the quality of accounting information.
We also investigate whether the results reported in Table 5 are robust after controlling for the interactions between our
main variables of interest and growth, risk, loss making, size, and earnings persistence. Untabulated results show that the
coefcient of POST (i.e., 1 during 19982005, 0 during 19941997)  EPRC
is negative and signicant in 6 out of 10 cases,
t
and that the coefcient of POST  EPRC
t1 remains insignicant, supporting our prior nding that harmonization with IFRS during 19982005 did not improve the timeliness of recognition of earnings. We also nd that only growth and manufacturing
industries are positively and negatively associated with FERC, respectively.
Furthermore, untabulated results show that the coefcient of POST (i.e., 1 during 20072009, 0 during 20012005)  EPRC
t1
is positive and signicant in 6 out of 10 cases, and the coefcients on POST  EPRC
remain insignicant, supporting our prior
t
conclusion that convergence with IFRS does not improve the timeliness of recognition of earnings. We also nd that only loss
making, risk measured by earnings variability, and earnings persistence are all negatively associated with FERC, which could
be caused by the fact that convergence with IFRS in China increased the use of fair value accounting, which would increase
earnings volatility (Ball, 2006) and reduce earnings persistence (Tucker and Zarowin, 2006). Interestingly, we nd that the
unique ownership structure in China, such as state ownership, does not appear to affect FERC.

6. Summary and conclusion


This study examines the extent to which a series of harmonization and convergence with IFRS in China affects the timeliness of recognition of earnings. We nd that PRC GAAP earnings have a lower ERC than IFRS earnings in the pre-, initial, and
further harmonization periods, and that PRC GAAP earnings have a higher FERC in the further harmonization period
compared to IFRS earnings. We also nd that the ERC of PRC GAAP earnings reduced from the pre-harmonization (1994
1997) to the initial and further harmonization periods (19982005), while the FERC of PRC GAAP remains similar. More
importantly, we nd that the FERC of PRC GAAP earnings increased from the further harmonization period (20012005)
to the convergence period (20072009). The above results are robust after controlling for other factors that could inuence
ERC and FERC, such as risk, earnings persistence, growth, size, ownership structure, trading volume, and industry. However,
6

Vuongs (1989) z-test indicates that the difference in the adjusted R-square is insignicant.

G.S.-h. Wu et al. / Journal of Contemporary Accounting & Economics 10 (2014) 148159

159

these results need to be viewed with some caution given the relatively small sample size for each of the years under study.
Moreover, these results are obtained in the Chinese setting, where legal and institutional arrangements are different, and
caution should be exercised in generalizing the results to other countries.
Overall, our empirical results indicate that earnings reported under PRC GAAP are generally less timely than earnings
reported under IFRS and, more importantly, the timeliness of recognition of earnings reported under PRC GAAP worsened
after a series of harmonization and convergence with IFRS. An important implication of this study is that we nd that harmonization and convergence with IFRS, instead of a full adoption of IFRS, may not improve the quality of the domestic
accounting standards in emerging capital markets. Our results should be of interest to investors, nancial analysts, accounting standards setters, and other users of nancial statements.
Acknowledgement
We are grateful for the constructive comments from the anonymous reviewer and the Editor and the participants at the
American Accounting Association 2010 annual conference in San Francisco.
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